Monday, February 16, 2009

Perverse Incentives

"Barney Frank was on Face the Nation this morning talking about the problems of perverse incentives created by the current policies. These guys, he said, can make risky decisions and make great profits, but if the turn out to be wrong decisions they don't have to worry about all the loss. Congressman Frank argues that we need to change this. REALLY???

It would have been nice if he knew that basic lesson of economics before he pushed for a lowering of lending standards over a decade ago. But while he might have learned something in the process about incentives decision makers face, he hasn't learned that the current set of rule changes being advocated are simply augmenting the perversity rather than countering it."
Well put!

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